China Deepens Financial Ties with Hong Kong and Boosts Market Liquidity

At the Asian Financial Forum in late January 2026, the People’s Bank of China (PBOC) announced a suite of measures designed to deepen financial market integration with Hong Kong. Deputy Governor Zou Lan articulated support for the growth of Hong Kong’s offshore yuan market through expanded bond issuance and enhanced liquidity tools, including the doubling of the yuan funding quota under an existing swap facility to 200 billion yuan. By introducing yuan-denominated government bond futures and expanding interest-rate and currency derivatives, Beijing is aiming to attract more international participation in both onshore and offshore yuan assets, enhancing price discovery and hedging options for foreign investors.

This initiative forms part of a broader effort to encourage foreign capital flows into Chinese markets at a time when foreign direct investment (FDI) into China has weakened. Data released in January showed that FDI slid by 9.5% in 2025 to around 747.7 billion yuan (about $107.4 billion), marking a notable contraction in inflows compared with 2024. Despite the overall decline, China saw significant investment increases from specific countries such as Switzerland, the United Arab Emirates, and the United Kingdom, underscoring nuanced shifts in investor preferences.

Against this backdrop, Chinese authorities have also taken proactive steps to engage foreign enterprises directly. Ahead of a high-profile visit by the UK prime minister, officials in Beijing held roundtable talks with representatives from major British firms including HSBC and Swire Group. Chinese commerce officials emphasized the importance of deepening investment cooperation in fields such as services, green transformation, and advanced technology, even as some business leaders remain cautious about near-term demand prospects.

China’s evolving financial posture also reflects a broader diplomatic and economic strategy to sustain confidence among international investors. Beijing publicly urged the European Union to avoid actions that could undermine investment confidence among Chinese enterprises, criticizing proposed restrictions on Chinese suppliers in critical infrastructure as potentially harmful and protectionist. These diplomatic overtures form part of China’s effort to balance geopolitics with continued global economic engagement.

Meanwhile, China continues to attract attention at international economic forums, keeping a lower public profile while quietly pursuing Western investment opportunities. Officials and business leaders at events such as the World Economic Forum in Davos have underscored China’s openness to global capital and willingness to strengthen economic ties across regions. This cautious but active engagement suggests policymakers are seeking to calibrate external investment flows with domestic priorities, even as capital markets evolve.

Taken together, these moves signal China’s strategic pivot toward enhancing financial linkages with global markets, stabilizing investor sentiment, and expanding the role of the yuan in international finance, all while navigating the broader context of slower FDI inflows and shifting geopolitical dynamics.